Tom Walsh: Never mind their stock prices, Ford and Chrysler are booming

January 31, 2013

Detroit Free Press Business Writer

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First, Ford on Tuesday, and then it was Chrysler on Wednesday, letting loose with salvos of boffo positive numbers -- billions of dollars of profits, record $8,300 profit-sharing payouts for Ford workers, 30 straight months of vehicle sales gains for Chrysler, a company at death's door four years ago.

Forgive the Wall Street investment community for its treatment of Ford stock the past couple of days -- and for its dissing of U.S. automotive stocks in general.

Decades of disappointment are hard to shake off, and that's what auto industry stocks delivered for many years, culminating with the carnage of the past decade, which drove Ford stock to a low of $1.01 in late 2008 and forced the bailouts of General Motors and Chrysler and bankruptcies of dozens of auto suppliers.

Without that historical cloud hanging overhead -- and the lingering funk in Europe -- the year-end 2012 financial reports for Ford, Chrysler and other auto-related stocks would be cause for unbridled euphoria.

Consider these impressive numbers from Ford's Glass House headquarters in Dearborn:

• Fourteen consecutive profitable quarters, capped by the biggest fourth-quarter operating profit ($1.7 billion) in more than a decade.

Those profit-sharing checks -- which don't event count bonus payouts to Ford salaried workers -- will pump $380 million in spendable income and taxes into local communities, half of it in Michigan. Can you imagine what the car and truck showroom traffic will be like at Ford and Lincoln dealerships located near Ford plants after workers get the profit-sharing checks March 14?

Despite all this good news, Ford's stock price fell more than 6% over the past two days, dropping 64 cents Tuesday and 21 cents Wednesday to close at $12.91 a share.

On Wednesday, Chrysler delivered its own batch of glowing numbers, which would have been scoffed at as hallucinations when the automaker was on the verge of collapse four years ago:

And how did the Wall Street analysts react? They grumbled about Chrysler lowering its 2014 projections for free cash flow by two-thirds, to $1 billion, and fretted that the company seems to be lowering expectations for future profit margins.

OK, I get it. Wall Street analysts, like journalists, are inclined to be skeptical show-me types, looking for ammunition to blow holes in the sometimes overly rosy proclamations of corporate bigwigs.

There's always some big reason to worry on the horizon. Right now, it's the economic tailspin in Europe, which has become a sinkhole for the regional units of Ford and GM there. Chrysler's controlling partner Fiat, meanwhile, would be in big trouble if not for the miraculous rebound of its American better half.

And there's also the drag of history.

"Certainly, there's something of a once-bitten, twice-shy feeling about auto stocks among many investors," said David Kudla, CEO of Mainstay Capital Management in Grand Blanc.

Kudla said he's heard expressions of pessimism lately from pundits who believe that the U.S. profit margins of Detroit's automakers are as good as they can get, and therefore the stocks of Ford and GM are fully valued. "But I think a lot of analysts are underestimating what these companies have left in them. I think they have further to run," he said.

Bob Shanks, Ford's chief financial officer, made the same argument Tuesday when I asked whether Ford's growth had stalled.

"We're guiding to a 10% profit margin again in North America, which is a terrific margin," he said.

And despite problems in Europe, where Ford lost $1.75 million last year and forecasts a $2-billion loss in 2013, Shanks insisted Europe will be a significant profit contributor in the future, after returning to breakeven by mid-decade.

"When you put it all together, is there an imbalance of (profit) contribution by region? Yes," Shanks said, "but the plan that led us to terrific profitability in North America is what we're using everywhere else. I don't want to sound overconfident, but we've got a great degree of confidence in what we're doing in all regions."

There you have it. The car companies are confident; Wall Street is cautious. Enjoy the welcome back bounce here on Main Street in Michigan, but don't hold your breath waiting for Wall Street to suddenly embrace Detroit.